Friday, 28 November 2014 01:11
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Rich in resources and human capital, the South Asian Association for Regional Cooperation (SAARC) has nonetheless struggled to promote intra-regional trade, but the latest summit is attempting to change that.
The process of economic cooperation under the SAARC framework started with the signing of the Preferential Trade Agreement in 1993. Due to the several limitations of this agreement, South Asian countries entered into free trade regimes in 2004 as a step towards customs and economic union.
However, the progress on the South Asian Free Trade Area (SAFTA) has been so slow in the last eight years that it has not been able to create any momentum. Some part of this is because bilateral trade agreements have been more successful but, as in the example of the Comprehensive Economic Partnership Agreement (CEPA) between India and Sri Lanka, uneasy relations have undermined trade ties.
Intra-regional trade in South Asia accounts for around 5% of global trade, a dismal picture in comparison to other contemporary economic blocs. Most of the eight members including India, Pakistan, Bangladesh and Sri Lanka do much more trade outside of the region.
There are various reasons for poor performance in trade cooperation. Lackadaisical implementation of instruments of trade liberalisation including the prevalence of sensitive list, non-tariff and para-tariff barriers and poor connectivity among the countries are few of them. It is vital to facilitate cross-border flow of investment and trade in services to achieve deeper integration, which remains a cherished dream for South Asian community.
India’s Prime Minister in his opening remarks at the summit pledged to ease custom duties, open transport links and push forward other trade liberalisation methods including stamping business visa valid for three to five years for SAARC. But no timeline has been given for these efforts. Experts insist SAARC requires substantial investment in basic infrastructures to address the issue of physical connectivity. The Asian Development Bank has estimated that South Asia needs an annual investment of $ 250 billion over the next 10 years to bridge the investment gaps on infrastructures.
But there is a huge funding bottleneck. Limited funding is available through multilateral financing institutions. The South Asian Development Fund (SADF) is not yet operational to be able to fund infrastructure projects.
Attempts to make the fund larger have so far been unsuccessful leaving experts to suggest tapping the Asian Infrastructure Investment Bank (AIIB), backed by China. Five South Asian countries – Bangladesh, Nepal, India, Pakistan and Sri Lanka – are already signatories to the institution. They also advocate active participation on China’s 21st Century Maritime Silk Route policy.
China itself has shown enthusiasm by becoming increasingly involved in SAARC with President Xi Jingping visiting Maldives, Sri Lanka and India in September. Nonetheless broad consensus is yet to be reached among SAARC members on whether to allow China a seat on the organisation and elevate it from Observer status it has maintained since 2006.
Adding to complicated geo-politics is historic rivalries, especially between Indian and Pakistan, which is threatening to derail crucial agreements at the 18th SAARC Summit. Despite calls from all leaders to push ahead with integration, reports have indicated Pakistan is unprepared to sign three separate SAARC Framework Agreements on railways, motor vehicles and energy cooperation.
However, during the leaders’ retreat on Thursday Indian Prime Minister Narendra Modi was seen greeting his Pakistani counterpart, sparking hopes that the nearly three-decade organisation can finally move forward to collective prosperity.
